Dull at Any Speed
GM Never Learned to Shift Gears

By Maryann N. Keller
Post
Sunday, June 12, 2005; B01

In a Detroit suburb in the late 1980s, General Motors established a large technical facility it called the Mona Lisa center, where its engineers disassembled Honda Accords and Toyota Camrys in a desperate search for the secret of their Japanese competitors' success. They analyzed the smallest pieces trying to figure out the best attributes to include in future GM models.

The reasons for GM's decline could have been found there on the floor of the Mona Lisa center, but not among the parts. It was the whole approach. Taking apart existing cars is a backward-looking exercise; it doesn't tell you what's going to sell four or five years down the road. So while GM was staring in its rearview mirror, its competitors were zipping ahead.

What ails GM today is much the same as what ailed it then -- and it's not just a matter of big pension plans, health care costs for workers or undervalued Asian currencies. The problem is that GM has forgotten how to make cars that people want to buy.

That's why the 25,000 layoffs that GM announced on Tuesday were only part of the week's distressing news for the automaker. The company also said that it is hard at work at a concept car called the Buick Centieme, a seven-passenger "crossover" vehicle designed to compete with popular rivals from Honda, Ford and Chrysler. (Crossovers have SUV attributes, but are built on car, not truck, platforms.) GM's lack of a seven-seat crossover wagon to sell in 2005 is a problem now, but the new model car won't arrive until sometime between 2007 and 2009. Will it be substantially better than what I could buy today? GM has never behaved as if it understood that the competition is always moving forward. The car I can buy today is not something I want in four years. The company might as well still be stuck in the Mona Lisa center.

It's hard to pinpoint when GM lost its touch. At the start of my career as an auto industry analyst in 1972, General Motors had a triple-A credit rating and a portfolio of distinctive and powerful brands that suited America's growing affluence and emerging suburban lifestyle. I myself had bought a new Pontiac Tempest just after college in 1966 and I loved it.

But I've owned only one GM car since then. For the past 33 years, I have watched, analyzed and chronicled the decline of GM's market share and leadership among the world's automakers. In the 1970s, the company lost its creative edge, paying more attention to financial calculations than consumer tastes. Since the 1980s GM has been forced into more downsizings and restructuring than I care to document. Each time, it has touted multibillion dollar cost savings and a corporate revival based on new products in the pipeline.

That's what happened, again, last week. At the company's annual shareholder meeting, chief executive G. Richard Wagoner Jr. delivered a statement essentially identical to what we've heard time and again. He announced yet another round of job cuts and factory closings while expressing confidence in the success of future models. GM stock surged, just as it has after every other cost-cutting scheme.

But while Wagoner is trying to exude confidence, GM cars are languishing on dealers' lots. And history tells us that getting rid of people and factories is not going to close gaps in product development and production efficiency with competitors such as Toyota. It is simply aligning the company's assets to a new reality of a permanently lower market share.

This would have been unimaginable to Alfred Sloan, the legendary GM chairman who rebuilt the company after an earlier brush with bankruptcy and who retired in 1956. He had left behind a heritage of engineering innovation and financial controls that supported smart decisions without stifling creativity. The company was so dominant, it could have run on cruise control -- at least for a while.

Sloan's successors lost touch with consumers. People used to speak with awe about the executive offices on the 14th floor of GM headquarters. Visitors had to go through two sets of electronically locked glass doors and file past guards. Inside, it was like a sanctuary -- very, very quiet with beige carpeting and wood paneling. The executives had their own private dining rooms and secretaries sat watch over closed office doors, preventing any opportunity for casual conversation. Cocooned there, GM's executives became smug.

By the 1970s, new forces -- rising gasoline prices and competition from Japan -- were beginning to assault the company and Sloan's world was passing. GM responded to cheap Japanese imports by cutting quality. One Chevy model actually left out the back seat to cut costs. Brand definition, Sloan's genius, was blurred.

In the 1980s, Roger Smith, whose long tenure as CEO was marked by GM's greatest failures, took the company through a disastrous reorganization and then proceeded to spend more than $15 billion on robots and factory automation, none of which helped product quality or cut costs.

Smith also acquired Electronic Data Systems, which Ross Perot had founded, to shake up the company's culture and Hughes Aircraft to introduce space age technology into the car. Money that should have been devoted to designing better automobile engines and restoring the luster of, say, Cadillac (which had degenerated into a tarted-up Chevrolet) was spent on diversions. Smith also added Saab to the roster of money-losing ventures. A multi-billion-dollar investment in Saturn was supposed to spur a cultural revolution by getting management, labor and dealers to work together. But in the 1990s, GM's next CEO, Jack Smith, and his team starved that division, which had enjoyed modest retail success at the outset because of a strong and dedicated dealer body. Today Saturn has been relegated to just another undistinguished GM brand that has cost the company more than $10 billion.

During the 1990s, GM focused on productivity and quality with some success. Profits soared for a while. But once again dollars that should have been invested in cars were diverted into stock buybacks at prices considerably above the current level, vehicle production in China and elsewhere in Asia, Internet startups and lastly into Fiat, the Italian automaker. That Rick Wagoner can argue, as he has, that the $4 billion to $5 billion it cost to get in and out of Fiat (about half to buy a stake and half to get out of an obligation to buy the rest) was money well spent is beyond belief. It is baffling that GM -- a company supposedly run by "bean counters" demanding forecasts of double-digit returns before approving investments -- wasted so much.

Jack Smith, who got the top job in 1992, brushed aside concerns about the slide in the company's U.S. market share by saying that GM's global share mattered more because of faster market growth abroad. No one at the company seemed to understand that the United States has been, is and will be the source of virtually all of the profits earned by world automakers. How could GM think that it could save itself in Asia when the Japanese and Korean auto companies have been intent on increasing sales here because this is where the profits are?

Jack Smith also blamed GM's U.S. problems on poor marketing rather than poor vehicles. In an effort to establish unique brand identities in the increasingly crowded American market, the company expanded the influence of market researchers even as it reduced the ranks of engineers. GM convinced itself that by using "psychographics," a hocus pocus term that means a combination of psychology and demographics, it could profile the U.S. population and create niche products. Car designers surrounded themselves with photos of their intended customers . I remember being taken through these studios with then-executive vice president for marketing Ron Zarella. On the wall of one studio hung large photographs of vital young men and women doing the things that GM associated with Pontiac. One photo showed a Spandex-clad young woman rock-climbing, the supposed inspiration for the prototype of what would become the Aztek. The car, by comparison, was anything but agile and sleek. GM managed to create a vehicle that everyone hated.

One has to wonder why it has been so hard for GM to figure out what car buyers want and then give it to them. The company has not been able to leap ahead of the competition since the early 1980s when it led the way into front-wheel drive. Its failures are numerous.

Chrysler launched the first minivan in 1984. It took more than a decade, but the Japanese established themselves in the sector while GM failed to come up with a desirable model. Today, GM's minivans still lack the seating configurations that have become the norm, forcing the company to lure consumers by offering thousands of dollars in "incentive" discounts, ultimately a self-defeating exercise that gives the impression (correctly) that the company is having trouble selling its cars.

GM has all but given up trying to come up with a competitor to the Toyota Camry and Honda Accord that its Mona Lisa center took apart. But Toyota added a hit SUV, the RX 300 in its Lexus line. When Toyota realized that the Lexus brand was attracting only older buyers, it created Scion and matched unique style with unconventional marketing to appeal to the young generation. When GM faced the same problem of appealing only to seniors with Oldsmobile, it ended up killing off the brand and sacrificing more market share.

GM's product planning has also ignored the possibility that fuel economy might again become a priority for consumers. When I was a member of a National Academy of Sciences panel studying the Corporate Average Fuel Economy (CAFE) standards for the auto industry in 2001, GM argued against raising them. At the same time that it was forecasting bigger auto sales in China, it was denying the impact that would have on oil markets. And it is virtually alone in arguing that aging models explain its falling SUV sales while every other vehicle manufacturer points to fuel prices as the reason. The SUV boom of the 1990s is over and with it the huge profits that these titans generated.

GM's management tells us to wait until the new GMT 900 series of SUVs and pickups hit the showrooms next year. These will be followed by more new models, including the new entrants into the surging crossover category. But GM's Asian competitors are introducing new models and refreshing existing ones at a faster pace, so that GM is always reacting rather than forcing its rivals to respond. And there are just too many examples of the company's failure to match the competition, let alone innovate, leaving us to wonder why we should believe that what's in the pipeline will be any better.

It's true, as management argues, that health care costs are a huge burden for GM. But management agreed to the health care provisions in past contracts based on faulty assumptions of rising production. It seems unfair to ask hourly workers to sacrifice wages without equal sacrifice among executives or the shareholders who still get a $2-a-share dividend from the company's large but rapidly dwindling cash horde.

What is so tragic about the GM story is that the company has always attracted highly talented and dedicated people who want to do the right thing. No one at GM wants to close factories or bribe customers with rebates or employee pricing. GM invests more money and time in the creation of a new model than Toyota. So why does GM get it wrong so often? Why was Lee Iacocca able to save Chrysler? How is it that Carlos Ghosn was able to turn Nissan around in a few years and GM hasn't been able to stabilize itself in three decades?

It's hard to change a corporation's culture, especially when the corporation is as large as GM. The age-old refrain about GM is that its executive ranks are dominated by treasurer's office graduates while car guys are nowhere to be found. Yet Jack Smith moved the company away from Roger Smith's imperial style to consensus management. Rick Wagoner, admitting a lack of product expertise, brought in Bob Lutz and gave him the freedom to revive GM styling. But a stifling corporate culture plagued by slow decision-making and a lack of accountability is hard to change.

Perhaps Ghosn's and Iacocca's secret weapon was a willingness to admit to a crisis. So far, GM has only told us to wait for the new models while it leans on the United Auto Workers for concessions.

Back in the Sloan era, GM was so dominant that it was worried that government trustbusters would order a breakup of the company. Those days are long gone. And while the company still has substantial resources, unless it can come up with some more appealing vehicles, no amount of UAW concessions or layoffs will be enough.


Maryann Keller, of the consulting firm Maryann Keller & Associates, is the author of "Rude Awakening: The Rise, Fall, and Struggle for Recovery of General Motors" (William Morrow) and "Collision: GM, Toyota, Volkswagen and the Race to Own the 21st Century" (Doubleday).

© 2005 The Washington Post Company

I found this read on an Autoweek forum. I wanted to stray away from that other thread about GM using employee discounts to attract buyers. While Keller makes a good argument about GM's current situation, it kind of hides GM's successes. What about the story of the Corvette, and its racing heritage? What about GM's racing heritage, period? The article fails to address these triumphs, which in turns makes GM look even worse than it is. I'll admit, 25,000 people are going to lose their jobs, however, the General is up in arms. What else can they do? Keller is somewhat correct. They really screwed themselves over after the 1970s, but GM saw a resurgence of sorts in the 90s, with SUVs and a sexier Corvette, for example. Now, there's no Oldsmobile, the XLR is pretty much a flop (hate the tailights BTW), but GM is not down and out. Hopefully, new models like the Solstice and the Sky will bring in convertible-hungry consumers, even if they are front-engine derivatives of their VX220 roadster. However, I wish GM had a little bit more ingenuity than spending x-amount of dollars to import cars like the Holden Monaro (though I hear they are redesigning a new GTO. Too little too late IMO). Yeah, R&D is a bitch when you only have a limited budget and very little time. Personally, GM should take time in designing cars, the way they do with the Corvette. I believe timeless designs are the key to bringing in consumers. I'm probably going to forget about the GTO's or XLR's styling in a few years, and I'm certain the guys in Detroit don't want to hear that. Somehow I felt cars like these, including the Aztek (styling-wise), were rushed in order to compete with the rest of the world. If GM is supposed to be the number one auto maker in the world, they should act like it. Lead, never follow. But in a time where things look bleak, looks like the General is ******* itself again.

 

The Corvette and a racing heritage don't mean dick when a the company as a whole is so far out of touch with the marketplace. The Corvette and its racing heritage is not what will keep the company a float. This article is making the point about GM nor being relevant today. Sure they make a dam fine car in the Corvette, but that is a narrow sliver of the market place.

At the very least they should be looking down the street at what Chrysler is doing. They make stylish cars that appeal to very specific markets....it doesn't even seem to matter that their quality is pathetic.

 

The Corvette is actually the embodiment of GM's thinking that this guy is talking about.

The only reason it is a success is because of it's lineage. It's history. Aside from the HUD the Corvette really isn't the epitome of forward looking technology. It's old technology and old design re-engineered to today's markets. Again, looking backwards instead of forwards.

 

Can't argue with their success regarding the Vette though. Lineage is not the only reason or we'd still have a Camaro/Firebird.

The new Mustang is the epitome of looking backwards (even moreso than the Vette). Looks like it was a good decision for Ford thus far. The latest technology doesn't always translate into the best product.

 

yes but the Mustang is a car for the masses...the Vette isn't.

 

It seems that the solution car companies have had is to go backwards. All the retro styling especially. Now the pushrod LS, that is an example of old technology that is good, because that is one of the best V8s in the world. It's very light. But leaf springs are a bad example of looking backwards. What's my solution? Have all American car companies invest in the engine of the future, the Rotary :p.

 

THe new mustang takes cues from the past, but it is a new machine built on current market data. Yes, it has history and a long successful lineage, but it incorporates new technology/design and is a response to what the market currently wants.

 

Ditto on the mustang. It has traction control, it has drive-by-wire throttle... the engine has overhead cams. And for not having IRS, it supposedly handles pretty damn well... it's done well in racing. With a good suspension package... Saleen or Rousch... it'll probably handle REAL well.

 

shelleys_man: In your posts about the domestic car industry, you seem to keep stressing the importance of bringing exciting cars to market, and you blame the R&D people for failing in this respect. However, as others have pointed out, cars for enthusiasts are not what keeps companies profitable. It's the bread and butter vehicles like sedans, SUVs, and trucks that are responsible for most of the profits. GM and Ford are losing market share in these segments, mainly because of increasing competition. Back when the Explorer first came out, there were only 3 SUVs in the segment! Compare that with over seventy now, and the rising cost of gas, and you can see why GM and Ford are struggling to grow in the SUV and truck segment. Now they are facing a massive overcapacity problem, and they need to dump hourly workers to stay profitable. If GM can manage to bring out some hot new vehicles, it will certainly help their situation, but it's almost inevitable that their market share will continue to decline due to incresed competition.

Consider Toyota, the healthiest automaker on the planet right now. Do you think that "exciting vehicles" is one of the main reasons for their success? I would certainly answer no to this question, and I think the majority of consumers would agree. Toyota's success is a result of the stellar reputation they have built through manufacturing excellence. Heck, they don't even need a mass-produced sports car to attract customers.

It's going to be a long and hard road for GM and Ford, because reputation is not something that can be changed with a lineup of new vehicles. It's going to take a committment to quality and many years to earn back the trust of consumers who have fled to foreign automakers.

 

Actually, this is the precise reason we do not have the Camero of Firebird anymore. The Vette has an almost occult like status. The other cars do not to the same extent, despite sharing some of the 'vettes technology and basic body layout.

 

It takes as much courage to stick with a good thing when convention pushes you to go with the newest thing as it does to go with the new thing when convention wants to stick with the old thing.

 

What the article is saying is that convention is pushing but GM consistently follows, instead of drives the market. It's good to have history, but innovation is key. Otherwise we'd still all be in Model-T's.

 

Amen Buckeye! Well said. America CAN build quality cars. It's not cheap nor is it easy but they can do it. The minute they do, I will buy American again.

 

Americans do build quality cars, they build the Honda Accord...........

 

I know what you're saying, and won't doubt it's a step up from the old Mustang, but overhead cams, drive by wire, and traction control aren't really these new innovations per se. They are reverse engineered ideas that GM didn't develop, but took from competitor cars that already had it, like the Mona Lisa facility did in the article. I think what the article is talking about it say if GM focused on doing things like inventing VTEC in the first place instead planning to incorporate an equivalent into their cars after Honda did it, they would be in a much better position today.

 

America DOES build quality cars. They build half the "Japanese" cars. And GM is ranked higher than any European make and most Japanese makes on almost every reliability analysis. It's not that Ford or GM or the UAW can't build a quality vehicle, because they most certainly can and do today. It's that, frankly, if GM started making the most bulletproof cars in the world today people still wouldn't buy them. Even if they looked good and offered a lot of nice features, people still wouldn't buy them. Not in the droves that they buy Toyotas these days anyhow.

GM, Ford, Chrysler, they are suffering from reputations that they earned (and for the most part rightly) 10-20 years ago. Boring, Slow, Unexciting, Pieces of crap. But that largely doesn't hold true today. But people still think so. And, what's perhaps worse, is that the media largely perpetuates this image.

For 20 years we've been swamped with "Japanese Quality is Superb" and "European Quality is Superb", and GM probably takes the brunt of the "American Quality is Crap" argument despite the fact that General Motors surpasses every European make and most Japanese makes in terms of overall reliability. Are GMs cars largely boring and unexciting? Yes. But so are Hondas and Toyotas.

With rare exception the media dotes after the Japanese carmakers as if they can do no wrong. When Ford announced it made $1.2B in profit in the first quarter the press focused on a couple of their models that didn't meet expectations, most articles didn't even mention the fact that Ford made double what Wall Street expected it to make. When a US automobile gets recalls or bad safety tests the media openly rails on them, to the point where it's apparently worthy of the 6 o'clock evening news. But when the same problems occur with Japanese automakers they're either covered up by stories of how poorly American automakers did in the same tests or just flat-out not mentioned at all.

And it's not like I'm anti-Japanese automaker or something. I love Mazdas, like most of Nissan's lineup a great deal, and although they're not Japanese, I can appreciate the work that Hyundai has done to turn estabish themselves and formidable competitors in the marketplace. I just keep up on industry news (what most people would consider the boring business side of things) a lot and have noticed this occuring with more and more frequency.

 

I'm talking about a car with a Ford, Chrysler or GM nameplate on it. I KNOW Americans build half of the Japanese cars we drive but it's not the same thing. I'm talking about cars designed, and built in America. As of right now, except for the Corvette, there are no American cars worth owning IMO. "General Motors surpasses every European make and most Japanese makes in terms of overall reliability." Okay

 

Yeah.. the best you could get from GM is actually being able to keep up with the rest as far as tech goes... god forbid they step out and try to invent something new.

I dunno GM, Ford... for some reason is all about sticking with whats tried and true.. this follow the leader thing in an ultimate effort to pass savings on to the customer. They are so out of touch that they dont even know that the people WILL pay for a product (pricier or not) provided you show them why they are paying what they are paying.

 

So you're not talking about "Quality" you're talking about "Exciting" or perhaps "Well-Performing", since the Corvette is far from the pinnacle of reliability. But it's not like Toyota or Honda are exactly making the world's most exciting cars either.

 

You see, this is exactly what Sigma was trying to say. Many people immediately dismiss all American cars as being unreliable because of the reputations they developed in the 70's, 80's, and early 90's. I'm not saying the quality and reliability of American cars is quite up to the standard of the Asian automakers at this point, but all the metrics suggest that it's pretty dang close. When people have an American nameplate and something goes wrong, they say "Gee, what a surprise, it's an American piece of crap"; however, when something goes wrong with their Accord or Camry they say "I must have just got a bad one, because everyone knows these cars are rock-solid." This type of mentality is what is killing the domestic automakers right now, and it's going to be nearly impossible to reverse.

 

C'mon. If GM believed in the reliability of their cars and cared what people thought of them, thenthey could do what Hyundai did and offer REAL warranties on their cars instead of the penny-pinching 36/36,000 that's out there now.

To go along with what you're saying, Buckeye, I believe that, generally, people don't take care of their cars. No oil changes, driving with CEL on for months at at time, etc. When the American one breaks, the owner blames the brand. When the Asian one breaks, they blame themselves, go buy a new one, and tell themselves that it lasted "really long" for how much they abused it...

 

Hyundai took a huge risk by offering the 100,000 mile warranty, but they needed to do so because their reputation was far worse than any American brand. The risk paid off, because it's one of the main reasons that people started buying their vehicles. However, their long warranty is a huge financial burden and I'm willing to bet that they'd like to reduce it if given the opportunity. Hyundai doesn't offer this warranty because they believe in the reliability of their cars--it's a marketing gimmick more than anything.

With the domestic manufacturers, the 36/36,000 warranty is something that has existed for a long time. However, it doesn't apply across the board--many domestic vehicles are offered with longer warranties. I wouldn't be surprised if a lengthening of the warranty period becomes a part of the strategy for domestic automakers. They are going to need to do something to restore confidence in their vehicles. The problem is that if this increase in warranty period doesn't translate into an immediate increase in sales, all the warranty extension is doing is eating away profits. It's not as simple as "believing in the reliability of their cars".

 

All I can say is this, the last American car I had left me on the side of the road two times. It was three years old with less than 50K on the odometer. I have owned five Japanese cars since then with three of them being 98% pure Japanese and I have never been to a repair shop since. All of my cars receive the same care. I am **** to a fault.

The reason I mentioned the Vette is because it is a phenomenal performance value.
I know it's not reliable.

 

I am talking about quality. I mentioned the Vette only because it is a phenomenal performance value. I agree that most Honda's & Toyota's are dull cars. The one thing that isn't dull about them though is their resale value.

 

What type of car was it that gave you so much trouble? What were the failures? Since you say you've owned at least 5 cars since then, it must not have been a recent model. It's no secret that American cars during a certain period of time left a lot to be desired. Nonetheless, I understand how an experience like that could leave a really bad taste in your mouth, but remember that even Honda and Toyota make lemons. My last 3 cars have been designed and manufactured in Japan, and they have had their fair share of problems. Additionally, my wife had a '99 Accord V6 as her previous car, and she hated it, not only because of how bland it was, but because of the number of problems it had (although to be fair, it was used, so there's no telling how much the previous owner abused it).